Tiger Airways will dump overcapacity to SEAIR

The airlines is expected to deploy its unused aircraft deliveries from Singapore and Australia to its new JV partner.

Tiger Airways recently purchased a 40% stake in SEAIR, a joint venture that should boost the domestic network of the Singapore-based airlines, said PhillipCapital.

It's also likely that the injection of aircraft deliveries to SEAIR will help it steal market share from dominant rivals, Cebu Pacific and Philippines Airlines, reaping additional revenues for Tiger Airways.

Here's more from PhillipCapital:

Tiger Airways announced the finalized agreement to purchase a 40% stake in SEAIR for US$7mn, minus the agreed liabilities of SEAIR that would be determined through a due diligence process. Apart from the 2 A319s that are currently subleased from Tiger Airways, the company intends to inject another 3 A320 into the new Joint Venture (JV) by the end of FY13E. Tiger Airways would only be acquiring the A320 family jet operations of SEAIR and one of the conditions for the deal would require SEAIR to divest its non-core turboprop operations.

This development is positive for the company. Overcapacity issues in Australia & Singapore would be alleviated as aircraft deliveries this year would be deployed to its JVs. Following the deal completion, Tiger Airways would have operations in Australia, Singapore, Indonesia and Philippines, thus enhancing its network across the region. Foreign ownership restrictions remain a characteristic of the aviation industry in this part of the world. Thus, in order for Tiger Airways to expand into domestic operations of other countries, JV arrangements with locals are necessary. This is the second venture launched by Tiger Airways following the recent commencement of operations by Mandala Airlines in Indonesia.

According to 1QCY12’s data from Philippines’s Civil Aeronautics Board, SEAIR has a market share of merely 1.5% of international scheduled passenger traffic. Cebu Pacific and Philippines Airlines (PAL) have the largest shares of 16.5% and 25.5% respectively. SEAIR’s presence is also relatively small for the domestic operations that are being dominated by Cebu Pacific. However, with planned aircraft deliveries into the JV, SEAIR would likely gain market share.

Market impact from this announcement is neutral as news of this acquisition had been announced earlier. We maintain our Reduce rating on Tiger Airways as its profit outlook remains hazy in this tough operating environment.